On Monday, Scott Shane wrote a post at Small Business Trends titled "Do Small Businesses Matter in High Tech?"
As in most of Shane's writing he comes out swinging at small businesses in our economy. In his opening sentence, he proclaims: "Small Businesses are much less important in technology-intensive industries than in the rest of the economy."
In a conversation with Aron S. Spencer, Ph.D., who is an Assistant Professor, School of Management at New Jersey Institute of Technology, I found yet another kindred spirit in those who continue to be dismayed at Shane's antagonism toward small business.
Spencer asserts that Shane's premise "flies in the face of the conventional wisdom -- and common sense -- about high-tech entrepreneurship. It's also completely wrong."
As in past writings, Shane selectively uses and interprets data to make his case. "Shane begins his argument based on revenue share," said Professor Spencer, "citing evidence that small businesses generate small proportions of sales compared to overall high-tech sales. While this may be true, sales are only a small portion of the picture."
Spencer offers some specific evidence of his own. "Take, for instance Shane's discussion of R&D. Small business, he says, account for only about 1/5 of R&D spending (other studies I've seen indicate it may be as low as half that), whereas businesses with more than 25,000 employees account for 42% of the spending. Yet he fails to mention that about half of all patents awarded go to small businesses. That means that small business are 5-10 times as efficient with their research dollars. Patents awarded to small business are also more than twice as likely than those awarded to large businesses to be important patents, based on their impact on future R&D and patenting."
Spencer also takes exception, as I have in previous posts, to Shane's use of employment data. Shane argues that "small business also accounts for a smaller portion of technical employment than its share of overall hiring."
Spencer makes the following rebuttal to this: "The statistics he cites primarily indicate indicate that there are a lot of non-high-tech small businesses. The more interesting statistic is that small high-tech firms generate jobs at a rate over 5x their share of current employment (compared to just over 3x for non-high-tech small businesses), and therefor are among the most important drivers of employment growth."
Spencer also argues that Shane minimizes the importance of small high tech companies to the growth of the big ones. "Many of today's large tech firms drive substantial portions of their revenue growth via acquisitions. Cisco, for instance, has a reputation for 'growth by acquisition'. Harvard even wrote a case study about it. Google, in addition to their internal R&D efforts, has also shown a great appetite for purchasing outside technologies. Where do these acquisitions come from? Small high-tech business."
And that's why, once again, Professor Spencer and I both assert that Professor Shane is wrong. Small business does matter.
As in most of Shane's writing he comes out swinging at small businesses in our economy. In his opening sentence, he proclaims: "Small Businesses are much less important in technology-intensive industries than in the rest of the economy."
In a conversation with Aron S. Spencer, Ph.D., who is an Assistant Professor, School of Management at New Jersey Institute of Technology, I found yet another kindred spirit in those who continue to be dismayed at Shane's antagonism toward small business.
Spencer asserts that Shane's premise "flies in the face of the conventional wisdom -- and common sense -- about high-tech entrepreneurship. It's also completely wrong."
As in past writings, Shane selectively uses and interprets data to make his case. "Shane begins his argument based on revenue share," said Professor Spencer, "citing evidence that small businesses generate small proportions of sales compared to overall high-tech sales. While this may be true, sales are only a small portion of the picture."
Spencer offers some specific evidence of his own. "Take, for instance Shane's discussion of R&D. Small business, he says, account for only about 1/5 of R&D spending (other studies I've seen indicate it may be as low as half that), whereas businesses with more than 25,000 employees account for 42% of the spending. Yet he fails to mention that about half of all patents awarded go to small businesses. That means that small business are 5-10 times as efficient with their research dollars. Patents awarded to small business are also more than twice as likely than those awarded to large businesses to be important patents, based on their impact on future R&D and patenting."
Spencer also takes exception, as I have in previous posts, to Shane's use of employment data. Shane argues that "small business also accounts for a smaller portion of technical employment than its share of overall hiring."
Spencer makes the following rebuttal to this: "The statistics he cites primarily indicate indicate that there are a lot of non-high-tech small businesses. The more interesting statistic is that small high-tech firms generate jobs at a rate over 5x their share of current employment (compared to just over 3x for non-high-tech small businesses), and therefor are among the most important drivers of employment growth."
Spencer also argues that Shane minimizes the importance of small high tech companies to the growth of the big ones. "Many of today's large tech firms drive substantial portions of their revenue growth via acquisitions. Cisco, for instance, has a reputation for 'growth by acquisition'. Harvard even wrote a case study about it. Google, in addition to their internal R&D efforts, has also shown a great appetite for purchasing outside technologies. Where do these acquisitions come from? Small high-tech business."
And that's why, once again, Professor Spencer and I both assert that Professor Shane is wrong. Small business does matter.
I'm absolutely appalled by Shane's article. Everything you mention completely debunks his stance. His selectivity and interpretation of data is even worse. Spending on R&D as a measure for technology growth? Really? Since when did spending equal growth? (Looks like he's in cahoots with the Government.) Seems to me large businesses are throwing money around and getting nowhere. Link this to the video that you posted yesterday and you'll see an even greater connection. With a high-cash reward that large companies throw around comes poorer performance on above rudimentary cognitive thinking. No wonder Small businesses are 5-10 times efficient. They know how to motivate their employees and drive innovation.
With all this knowledge large tech companies should get on the acquisition bandwagon. Small businesses can create it faster and more efficiently than they can. The large companies role is to acquire or partner with the small tech business, take the technology and give it the resources it needs to be implemented on larger scale and let the entrepreneur move on. That way the entrepreneur can create another business to create more innovation and create more jobs and wealth for the American people.
Small business doesn't just matter in High-Tech it is the way.
Small business matters in the greater picture for sure. It's integral to the employment and the business sector. Big deal if it's not at the fore-front of the technology for it offers just as much value in different ways.
I think Shane is doing some interesting work--even if he tends to go too far in debunking "myths" about entrepreneurship, society as a whole tends to overstate the benefits of new firms. Entrepreneurship in tech sectors is important--it develops ideas that might be stiffled at larger companies--but it is not that important. Looking at the evidence you provided:
Spencer uses patent numbers to show that small firms are far more productive in their research than large firms, dollar for dollar. I'd be very curious as to the source of his data, since it sounds like an interesting project. I'd concede that Shane's argument is not particularly strong--small firms with a small R&D budget and poorly paid scientists compensated in equity are likely to spend less while producing quality research. But at the same time, patents are not the best measure of research productivity, and you'd expect small firms to be able to benefit less from patents outside their core competency.
The main point of Spencer's I take issue with is the following:
"The statistics he cites primarily indicate indicate that there are a lot of non-high-tech small businesses. The more interesting statistic is that small high-tech firms generate jobs at a rate over 5x their share of current employment (compared to just over 3x for non-high-tech small businesses), and therefor are among the most important drivers of employment growth."
Everyone knows that small firms generate large number of jobs. The problem is that they also far more jobs than large companies. There has been a fair amount of research showing that small companies, particularly in high-tech industries, are not the drivers of job growth.
"Many of today's large tech firms drive substantial portions of their revenue growth via acquisitions. Cisco, for instance, has a reputation for 'growth by acquisition'. Harvard even wrote a case study about it. Google, in addition to their internal R&D efforts, has also shown a great appetite for purchasing outside technologies. Where do these acquisitions come from? Small high-tech business."
This statement is an exaggeration that gets at the truth. Google, for example, is spending billions buying tiny outside companies, but these acquisitions don't drive revenue. Often they are a way to get talent and burn through google's immense cash pile. But I think this statement gets at a wider dynamic. Some of the most profitable small businesses involve people capitalizing on ideas or inventions, with the goal of being bought by a larger firm. If you have an idea for a new medical treatment, the best way to profit from it is to start a company, show the idea can be successful, and then be bought by large firm for millions of dollars. These ventures generate a small number of jobs and a large amount of research, but are really just an alternative research route for large companies.
"Why is it that we have an eye for big companies, Some big companies fall down hard! I agree of what Eric Carroll commented on this.
Carmela Lee from Arbre à chat pas cher "